Common Means Of Inventory Report Whitewash

　　 1. adjust profits through asset restructuring

Asset reorganization is an asset replacement and equity replacement implemented by enterprises in order to optimize capital structure, adjust industrial structure and complete strategic transfer. However, asset restructuring has been widely abused, and even when asset restructuring is initiated, people immediately think of making false accounts. In recent years, asset reorganization has been widely used in some enterprises, especially in listed companies, to whitewash accounting statements. It is easy to see that the secret of many listed companies turning losses into profits is asset restructuring. Typical practices are: (1) with the help of related party transactions, the non listed state-owned enterprises replace the inferior assets of listed companies with high-quality assets; (2) the non listed state-owned enterprises will sell the subordinate enterprises with higher profitability to listed companies; (3) the listed companies will sell some idle assets to the unlisted state enterprises at a high price.

For example, in the year XX, the land use right of 69 million 260 thousand yuan was sold to the parent company at the price of 219 million 260 thousand yuan, and the profit of 150 million yuan was confirmed. At the same time, the overall property rights of the enterprise (book net value 14 million 540 thousand yuan) were sold to the parent company at the price of 94 million 140 thousand yuan, confirming the profit of 79 million 600 thousand yuan. The total profits of the two assets reorganization amounted to 229 million 600 thousand yuan.

For example, in June XX, the stock price of 40% of the Shanghai * * Limited company, whose book value was 560 thousand US dollars, was priced at 40 million yuan, and its shares were replaced with the related enterprises. The equity replacement made the company's $560 thousand of bad assets converted into 40 million yuan of high-quality assets. This alone increased the income of the company by about 35000000 yuan, not only making the company free from losses in the first half of XX, but also making up a considerable portion of the profits that could be allocated after making up the deficit of 25 million 580 thousand yuan in the previous year.

Asset restructuring often has the magical effect of making a listed company lose its profits overnight. Its secret formula is to make use of the time difference, such as making substantial profits by making significant asset transactions before the end of the accounting year, and first, the exchange of unequal value, that is to say, with the help of related transactions, the profit transfer between the listed companies and the non listed parent companies will be carried out in the form of "garbage for gold".

　　 2. regulating profits through related party transactions

Many listed companies in China are restructured by state-owned enterprises. Under the condition of limited stock issuance, the listed companies often set up local reorganization through state-owned enterprises. After the reorganization of shareholding system, there are complex connections and related transactions between the listed companies and other subsidiaries controlled by the former parent company and the parent company. Using related transactions to whitewash accounting statements and adjust profits has become a "game" for listed companies to enjoy.

The main ways to regulate profits through related party transactions include: (1) fictitious economic operations, artificially raising the business and efficiency of listed companies. For example, some joint-stock restructuring enterprises have less than 70% of their main business revenue and main business profits, and sell their goods to their associated enterprises by selling their goods at high prices, and use their main business revenues and profits to "regenerate". (2) purchase and sale activities, asset replacement and equity replacement should be carried out in a manner that is substantially higher or lower than the market price. For example, asset restructuring cases mentioned above. (3) commissioned or operated by drought or waterlogging to raise the operating performance of listed companies. As recently reported by the securities and exchange press, a stock company has contracted a farm to a related enterprise at a cost of 8 million yuan, earning 72 million yuan in less than a year. (4) financial transactions should be carried out at low interest rates or high interest rates. For example, the stock company will borrow 1 billion 200 million yuan (69% of its total assets) and lend it to its associated enterprises. Although we are not sure whether its lending rate is reasonable, one thing is for sure. The profit of the stock company mainly comes from interest income from capital transactions with related enterprises. (5) to adjust profits by collecting or paying management fees or sharing common expenses, for example, the advertising fees of the listed companies held by XX in XXX group in the year of XX have borne advertising fees, because the advertisements made by listed companies will also help to enhance the corporate image of the whole group.

The biggest feature of regulating profits through related party transactions is that large losses can turn into big profits overnight. The profits of related transactions are mostly reflected in other business profits, investment income or extra business income. But the "windfall" earned by listed companies through related party transactions is often interrelated, which does not usually mean a substantial change in the profitability of listed companies. Another characteristic of regulating profits through related party transactions is that the result of the transaction is the transfer of profits from non listed state-owned enterprises to listed companies, resulting in the loss of state assets.

　　 3. eliminate potential losses through asset appraisal

According to the accounting system and prudence principle, the potential deficit of enterprises should be reflected in accordance with legal procedures and through the profit statement. However, many enterprises, especially state-owned enterprises, often use the assets appraisal to make bad losses, such as bad debts, unsalable and damaged stocks, long-term investment losses, fixed assets losses and deferred assets, and so on.

For example, when a state-owned enterprise was reorganized into a listed company in XX, the net profit margin reported in XX, XX and XX was 28 million 500 thousand yuan, 33 million 750 thousand yuan and 43 million 120 thousand yuan respectively. The audit found that: (1) in XX, XX and XX accounts receivable accounts for more than 3 years, and 75 million 630 thousand yuan is not expected to be recovered; (2) the deteriorated stock has lost about 30 million yuan; (3) the deferred assets with overdue unauthorized amortization of remittance losses is 11 million 500 thousand yuan. If these factors are taken into consideration, the company has not made continuous profits in the past three years and is not in line with the conditions for listing. To this end, the assets appraisal of the enterprise by the reorganization of shareholding system is an "opportunity". All these potential losses are used as assets valuation impairment, which is offset with the increment of 186 million 800 thousand yuan of fixed assets and land use rights, so that the profits in the past three years still reflect high profits, so as to achieve the purpose of successful listing.

　　 4. use virtual assets to regulate profits

According to international practice, assets refer to resources that can bring future economic benefits. Even if the requirements of accrual basis are included in the balance sheet, strictly speaking, it is not a true sense of assets, thus generating the concept of virtual assets. The so-called fictitious assets refer to the expenses or losses that have actually occurred. However, due to the lack of affordability of enterprises, they are temporarily listed as prepaid expenses, deferred assets, loss of assets to be handled and loss of fixed assets. The use of virtual assets as a "reservoir" does not confirm and amortize the expenses and losses that have occurred in time. It is also a common practice for state owned enterprises and listed companies to whitewash accounting statements, and make them redundant. Its "legitimate" excuse includes accrual basis, income and cost matching principle, and local financial department's instructions.

For example, XX has reported a net profit of nearly 20 million yuan in the year of XX, but according to the approval of the local financial department, the company has accumulated the accumulated depreciation cost, management cost, tax rebate loss and interest expense accumulated as "deferred assets". Considering these two factors, the company actually suffered a serious loss.

　　 5. utilization of interest Capitalization Regulating profit

According to the current accounting system, the interest expenses paid by enterprises for long-term assets such as construction projects and fixed assets can be capitalized before long term assets are put into use and included in the cost of these long-term assets. The capitalization of interest is the requirement of distinguishing between capital expenditure and operating expenditure from the principle of matching revenue and cost. However, in practice, many state-owned enterprises and listed companies abused the provisions of interest capitalization, deliberately regulating profits.

The most representative safety is Yu Taibai. The company's interest on loans and bonds payable during the construction of titanium dioxide was 80 million 640 thousand yuan, which was still capitalized when the project was put into use. As a result, certified public accountants issued a negative opinion audit report, which opened a precedent for the negative audit report of Listed Companies in China.

The more covert way to regulate profits by capitalizing interest is to capitalimate the interest of non capital expenditure by delineating sources of funds and purposes of funds by making use of the fact that it is difficult to define funds and borrowing funds.

　　 6. make use of equity investment Regulating profit

Because China's property rights trading market is still underdeveloped, accounting standards for equity investment are still in the stage. Many state-owned enterprises and listed companies use equity investment to regulate profits. In addition to the help of asset reorganization, many state-owned enterprises use the cost method and the equity method to whitewash accounting statements by using related party transactions to get the "bad profits" of the bad equity investment with the associated companies to replace the shares. The typical practice is that the profit making investment enterprise is calculated by the equity method, while for the loss invested enterprises, even if the share ratio exceeds 20%, the cost accounting is still used.

In recent years, some listed companies are under the pressure of profit, often signing the equity transfer agreement with affiliated companies on the occasion of the end of the accounting year. According to the equity law or through consolidated financial statements, the annual profits of acquired company are included in the accounting statements of listed companies. Fortunately, the accounting department of the Ministry of finance has issued a notice clearly stipulating that when a share transfer is made, the acquisition enterprise can only take the profit from the acquired enterprise before the acquisition date as the acquisition cost, and the acquiring enterprise shall not recognize it as an investment income. This regulation will no doubt inhibit state-owned enterprises and listed companies from using equity investment to adjust profits and whitewash accounting statements.

　　 7. use other receivables and other payables to adjust profits.

According to the current accounting system, other receivables and other accounts payable are mainly used to reflect other accounts other than accounts receivable, prepaid accounts, accounts payable and accounts receivable. Under normal circumstances, the remaining balance of other receivables and other payments should not be too large. However, during the audit process, we found that many other state-owned enterprises and listed companies had a huge balance at the end of other receivables and other accounts payable, which often matched the balance of accounts receivable, prepaid accounts, accounts payable and accounts receivable, and even exceeded the balance of those subjects. The main reason for these anomalies is that many state-owned enterprises and listed companies use these two subjects to regulate profits. In fact, the CPA profession has dubbed these two subjects "garbage cans" (because other receivables are often used to hide potential losses) and "cornucopia" (because other payments are often used to conceal profits).

　　 8. use time difference (across the year) Regulating profit

In order to give shareholders a satisfactory answer after the end of the year, some listed companies often adjust profits with the help of time difference. The traditional practice was to open the invoice in December, and then rushed back on the grounds of unqualified quality the following year. The more obvious way is to advance the revenue recognition by signing the agreement of "selling off" the right of income with the third party. For example, in December 5th XX, a joint stock company signed an agreement with a US company to purchase a number of hardware and software for US companies at a price of 35 million yuan. At the same time, the US company agreed to purchase the software developed at a price of 120 million yuan. The time of delivery of the contract was XX June and September, and the quality was assessed after December XX. In December 25th XX, the listed company signed an agreement with a foreign trade company to sell the software at a price of 96 million yuan, while confirming the profit of 51 million yuan. In view of the fact that the company has not yet provided goods or services, and the risk and remuneration have not yet been transferred, the determination of the above proceeds is obviously untenable. Even if the agreement signed with foreign trade companies is established, the 96 million yuan can only be used as a pre account receivable. Only when the goods or services provided in June and September can be recognized in XX, will the proceeds be recognized step by step. It can be seen that the listed company is essentially using the so-called "agreement" with foreign trade companies to carry out cross year profit adjustment.

Fortunately, the "income" guidelines have been promulgated to confirm that the realization of income must meet many stringent conditions, and to a large extent, help to curb the phenomenon of profit adjustment by using time difference.